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Chinese tax hikes slash fuel oil imports 30% so far this year

Wed, Mar 25, 2015 - 7:10 PM

[SINGAPORE] China's fuel oil imports have tumbled 30 per cent in the first two months of the year and are running at about half their peak two years ago, as fuel tax hikes crimp energy use and squeeze refiners' profits.

Chinese customs data this week showed that fuel oil imports fell to 2.86 million tonnes for January and February combined, from 4.06 million tonnes a year earlier.

Analysts typically look at Chinese data for January and February together as those months are often distorted by the Lunar New Year holiday, which can fall in either month. Average monthly imports for the past 12 months, at 1.37 million tonnes, are barely half the monthly peak of 2.71 million in January 2013.

While recent monthly volumes have shown their typical winter pickup, due partly to demand for shipping fuel around the season's holidays, overall imports have been on a downward trend since 2013, when authorities allowed ChemChina, an operator of smaller, independent "teapot" refineries, to begin importing and processing crude oil in addition to fuel oil.

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More refiners are expected to get crude oil import quotas this year, as China opens up a refining sector that has been dominated by state-owned majors. Others have also switched to tax-free bitumen, another type of heavy oil, to replace fuel oil.

Tax increases have accelerated the downtrend in imports. The government, keen to reduce China's heavy use of energy and natural resources while addressing its severe pollution problems, raised the fuel consumption tax three times from November through January to a rate that is 50 per cent higher than in 2009. This adds to the impact of a slowing economy and is expected to weigh heavily on consumption of fuel oil, although crude oil imports have been buoyed by purchases for the country's strategic reserves.

"I would expect a decline in fuel imports into China as the consumption tax hits the teapot refiners, who have already been reducing throughput of fuel oil as they gain greater access to internationally sourced crude oil," said Richard Gorry, managing director of energy consultancy JBC Asia.